Friday, August 10, 2012Last Update: 9:29 AM PT

Tobacco Tax Case Against Tribes Running on Fumes

SEATTLE (CN) - Native American tribes in Washington have monopolistic control over cigarette taxes, smoke shop owners and customers argued in a 9th Circuit hearing. The Puyallup and Colville Tribes have an agreement with the state allowing the tribes to collect taxes on cigarettes sold on their reservations. In exchange, Washington collects 30 percent of tribal cigarette revenue and waives its right to collect taxes on the cigarettes. Under the agreement, the tribes and the state share enforcement jointly. Washington enforces the agreement against nontribal and nonmember wholesalers, while the tribes enforce against retailers within their communities. The compact ensures that cigarettes sold on and off reservations to nonmembers bear essentially the same total tax burden. Two federal complaints were filed in 2011 by tribal members who owned retail stores on tribal land and nontribal members who bought cigarettes at the stores. Both suits make similar claims about the illegality of tribes taxing nonmembers, raise antitrust issues and demand refunds of the taxes paid. Both cases were dismissed on the basis of tribal sovereign immunity. In the Colville suit, U.S. District Judge Lonny Suko ruled that "Indian tribes, and tribal officials acting within the scope of their authority, are immune from lawsuits or court process in the absence of congressional abrogation or tribal waiver." U.S. District Judge Ronald Leighton meanwhile ruled the Puyallup have a "legally recognized authority to impose taxes." In barring the claim from being filed again, Leighton noted that a state and tribal court previously dealt with challenges to the Puyallup cigarette taxes brought by a combination of the same plaintiffs. Sovereign immunity also doomed those cases. "While they might raise novel arguments about violations of federal antitrust laws, those are claims that could have been raised at state court and are, therefore, not available in this action as a means to do an end-run around res judicata application of the prior courts' holdings," Leighton wrote. Spokane attorney Robert Kovacevich, arguing each case separately before an appellate panel on Monday, opened with an attack on sovereign immunity. "Tribes do not possess authority over non-Indians," Kovacevich said. "There is no sovereign immunity unless there is jurisdiction to impose the tax." John Bell, representing the Puyallup, said that was "flatly incorrect." The Colville's attorney, Richard Berley, told the court that there was no indication that Congress intended to apply antitrust laws against tribes. "Even if Sherman applies, nothing is shown that there were fixing of prices," he said. Both of the tribes' attorneys noted that all of the previous tribal cigarette taxation suits Kovacevich has filed have failed because of tribal sovereignty. "They have had the issue of sovereign immunity decided against them," Bell said. "Put an end to the waste of judicial resources." Addressing Kovacevich, Judge Susan Graber noted that his clients have litigated "a lot" to no avail. "Should we respect that?" Graber asked. Kovacevich said that state court is not bound by a federal court decision and vice versa.